Chips down in Crown's Gateway

Vanda Carson

CROWN'S Canadian casino joint venture with Macquarie Bank is in danger of breaching its banking covenants, credit rating agency Moody's has warned.

Moody's has downgraded the rating of Gateway Casinos and Entertainment by two notches to a level placing it in the category of companies "subject to a very high credit risk". The agency says Gateway may be forced to write down the value of its nine hotel-casino properties in western Canada.

It says the company's debt-to-earnings ratio is dangerously high at more than 10 times.

The Moody's rating now sits at Caa2, which is a junk rating in 17th position on a scale of 21.

Gateway has been cutting costs at its casinos since the start of the year, asking staff to take unpaid leave and forcing others to cut their hours.

But the response may not have been sufficient to alleviate the pressure of a hefty debt load.

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While Crown and Macquarie Bank do not release details of the Canadian casinos' financial performance, it is believed that revenue is down by up to 20 per cent across its casinos, including two in Vancouver, one in Edmonton and six in the wider region of western Canada.

"Gateway's capital structure is not sustainable in its current form, and may require some form of restructuring that involves a level of impairment," Moody's said in a statement.

Crown paid $224 million for the share in the casinos at the top of the market in 2007. It has written down the value by $49 million and recorded a loss of $14.2 million in its December accounts.

Macquarie listed the Canadian investment as "held for sale" in its September half-year report.